In a move that will make your savings account marginally attractive, RBI announced a hike of 0.5 percentage point in the savings deposit rate — the first increase in 19 years — taking it to 4% with immediate effect.
While the move makes the savings account deliver higher interest, the net effective return on this front remains negative.
“After taxes, the net benefit is 0.35 percentage points,” said Surya Bhatia, a Delhi-based financial planner. “One also needs to see the various transaction charges that banks may impose on various banking facilities that are available free now.”
Though the consumer may not benefit unless the savings rate is completely freed — a move that has already been initiated — this rate hike will hurt banks’ profit margins. As a result, banking stocks fell by 3.1% on Tuesday.
Experts say that competition may drive the rates upwards and it may go up to 5.5%. The highest that savings deposit offered was 6% in 1992, after which it came down to 3.5% in April 2003.